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Pennsylvania's budget woes bring warning from lenders, ratings agencies

| Thursday, March 24, 2016, 11:05 p.m.

Lawmakers in Harrisburg may have pushed a budget through for 2015-16, providing much-needed relief for school districts and human services providers, but financial institutions say the state's money troubles are far from over.

In a PNC report released hours after Gov. Tom Wolf said he would allow a Republican-designed spending plan to become law, the bank warned that the state's general obligation ratings could be downgraded if nothing is done to address a looming deficit.

It's the latest warning about what could happen if legislators can't come up with a way to correct the state's “fiscal course.” Standard and Poor's threatened to downgrade the state's rating this month and placed it on credit watch with negative implications, according to the report.

“There is nothing that has occurred in recent weeks or months that leads us to believe the spending plan will begin to put Pennsylvania back on a path to structural balance,” the PNC report states. “We do not expect the budget to come close to solving Pennsylvania's fiscal pressures, including its structural budget gap, which is sizeable and growing.”

If Pennsylvania's credit rating is downgraded, the state would have to pay more in interest on borrowed funds because it would incur a greater risk in the eyes of lenders.

“It's simply going to add to the pressure to get a responsible budget enacted,” said Randy Albright, Wolf's budget secretary.

Wolf announced Wednesday that he would allow a supplemental budget bill to become law without his signature. The $6 billion spending plan completes a $30 billion budget, ending a nearly nine-month impasse between Wolf and Republican legislators.

But the governor remains critical of the plan's failure to include additional revenue sources that would help eliminate a nearly $2 billion deficit. His call to raise taxes was a sticking point as Wolf, a Democrat, battled over the budget with Republicans since last summer.

“That should be your very last resort, but it's Gov. Wolf's first option to tax people,” said Steve Miskin, a spokesman for House Republicans. “We need to look at other ways to build Pennsylvania's revenues.”

Miskin mentioned pension and gaming reforms as alternatives to raising taxes.

Elizabeth Stelle, director of policy analysis for the conservative Commonwealth Foundation, agreed with him.

“If the governor is truly concerned about the structural deficit and ensuring that our credit is not downgraded again, he needs to consider true pension reform,” she said.

But Albright said the only other effective option would be to make huge cuts to education and human services programs.

“One has to wonder what exactly it's going to take to get the general assembly to recognize the fiscal realities of the state,” said Marc Stier, director of the liberal Pennsylvania Budget and Policy Center. “The budget they just passed is not balanced. The consequence is almost certainly going to be another credit downgrade.”

Elizabeth Behrman is a staff writer for the Tribune-Review. She can be reached at 412-320-7886 or Lbehrman@tribweb.com.

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